Random boos from the audience may be the least of former "Car Czar" Steve Rattner's worries. Digest readers may remember our trip to the Ira Sohn Investment Conference this May to hear the best hedge-fund managers in the world present their favorite ideas. The line-up was impressive... David Einhorn, David Tepper, Sam Zell, Seth Klarman. There was a lot of money in the room – a gathering of cutthroat capitalists. That's why we were surprised when we noticed Steve Rattner's name on the bill...
Rattner, a private-equity manager turned OBAMA! lackey, gave a self-aggrandizing presentation on the government's auto bailout. The Soviet-style propaganda was bad enough, but the breaking point came when Rattner said we must address income disparity in the U.S.
A month before the Ira Sohn conference, Rattner's private-equity firm, Quadrangle, paid $12 million to Attorney General Andrew Cuomo's office and the SEC for bribing New York State pension fund officials to get them to invest in his fund. A Vanity Fair article, out today, by William D. Cohan delves deeper into Rattner's sleazy practices. I can't find the article anywhere in Nashville, and it's not yet online. But there is a preview here.
In the preview, Cohan exposes another example of Rattner's sterling ethics. It involves Rattner convincing the CEO of a company Quadrangle had invested in – an entertainment company – to distribute the movie produced by the brother of a New York State pension fund official. The company distributed the film, and the fund invested $100 million with Quadrangle.
The story has stirred up more negative press. Yesterday, a friend sent me an e-mail circulating the Internet about Rattner's efforts as Car Czar. It discusses the 789 car dealerships closed by the U.S. government following the auto bailouts. Rattner led the effort.
Of the 789 shuttered dealerships, 788 had donated money exclusively to the Republican party. The other dealership had donated more money to Hillary and John Edwards than to OBAMA!.
There's major news surrounding one of the most controversial investment recommendations we've ever made at Stansberry & Associates Investment Research. InterOil, the Papua New Guinea-based oil company recommended by Matt Badiali, today finalized a joint venture with Japanese conglomerate Mitsui. The deal gives both InterOil and Mitsui a 50% stake in a plant that will strip condensate liquids (butane, gasoline, etc.) from gas produced by InterOil. The facility will produce about 9,000 barrels of oil per day (around $200 million in annual cash flow). As part of the deal, Mitsui has the option to buy 2.5% of InterOil's Elk/Antelope fields and a proposed liquefied natural gas plant. Shares of Interoil gained as much as 11% on the news.
The joint venture is a huge coup for Badiali, who maintained his long position in the stock despite criticism from short sellers (including hedge-fund manager Whitney Tilson) and speculation that the company was a fraud.
Why was Matt so sure? Unlike anyone we know on the short side, Badiali actually went to Papua New Guinea to investigate InterOil's deposits. We sent our best contact in the oil business, a Texas oil wildcatter, to help him evaluate the company. They were both hugely bullish on the prospects. Matt said he expected the company to "tack a zero onto its market cap." You can read about their findings (and see some great photos of fire-spewing gas wells) here.
We knew InterOil would only have one of two outcomes... It would either make investors many times their money (what we expected) or go to zero. It was either one of the largest oil finds in history or a complete fraud. But we put in the work. We sent Badiali halfway across the globe to investigate the situation firsthand. He spoke with management and employees, saw charts of the deposit, spoke with a handful of other analysts he met in New Guinea. That's what gave him the conviction to stay long InterOil.
That's the advantage we offer you... completely independent, in-depth research. While everyone was speculating on InterOil's validity, we went further than anyone else to discover the truth. While readers are still around even on the stock, this Mitsui deal means InterOil is a legitimate operation... And if our "tack a zero to the market cap" thesis is correct, our readers should be making huge gains soon.
Also, for the most comprehensive coverage we've seen on InterOil, make sure to check out the conference call we hosted for Off the Record subscribers. We invited Rick Rule, Matt Badiali, an InterOil representative, and a well-known InterOil short seller to discuss the company. It's not to be missed. To learn about Off the Record and access our InterOil call, click here.
Another major hedge fund manager, Peter Thiel of Clarium Capital, is preparing for deflation. As early as December 2009, Thiel was bullish on gold and expecting massive inflation. Now, he says austerity measures will win out. He expects a slow recovery over several years and the possibility of a double-dip recession. Thiel is advising investors to avoid equities and gold and go long Treasuries and the dollar.
Thiel, like the other hedgies betting on deflation, aren't giving the Fed's printing press the attention it deserves. As we wrote on Monday, the government will never allow the country to slip into a period of extended deflation. It's political suicide. And as Bernanke signaled this week, he's already preparing for a second round of stimulus.
Even more surprising is Thiel's sudden aversion to gold. Last December, he said, "Think of gold as not a protection against inflation, but as an anti-investment. You invest in gold when there's nothing good to invest in." Our question for Thiel is, what else is there to invest in? Certainly not the low-yielding debt and currency of a bankrupt nation.
New highs: EV Energy Partners (EVEP), Vanguard Natural Resources (VNR), Applied Micro Circuits (AMCC).
A few questions in the mailbag about what we're publishing in the Digest. Send your queries to feedback@stansberryresearch.com.
"At the end of the S&A digest is a list of recommended stocks. I'd like to know if you are recommending them as present buys and if so at what price? The same query applies to the Hall of Fame. What do you mean by publishing day after day? Is it a recommendation to buy as well? Finally please explain the meaning little table with names and scores. In which way are these tables of benefit to a newcomer?" – Paid-up subscriber FCR
Goldsmith comment: That's not a list of recommended stocks. Those stocks are the current "top ten" highest returns for stocks our editors hold open in their portfolios. The Hall of Fame is a list of the closed positions with the highest returns in the history of our company. You should not consider a stock a buy because it is in either of these lists.
"Regarding reference to 'How to Value a Business.' I believe you meant Frank M. Singer and not Paul Singer. (S&A Digest, Aug 3). Must be a good book because Amazon is sold out! Appreciate your publication." – Paid-up subscriber Jason
Regards,
Sean Goldsmith
Nashville, Tennessee
August 4, 2010